Contracts entered into on or after 1 July 2017 will be subject to the new Foreign Resident Capital Gains Withholding (FRCGW) rate and threshold.
The threshold for real property disposals has been lowered from $2 million to $750,000 and the FRCGW withholding tax rate has been increased from 10% to 12.5%.
The FRCGW scheme was introduced in July 2016 to assist in the collection of foreign residents’ tax. It only applies if the vendor is deemed to be a relevant foreign resident under the legislation.
What does this mean?
If you are an Australian resident selling property for $750,000 or more you will be required to obtain a clearance certificate from the ATO to be provided to the purchaser on or before settlement. If a clearance certificate is not provided, the purchaser will be required to withhold 12.5% of the purchase price on the vendor’s behalf and pay this amount to the ATO immediately following settlement. If the purchaser fails to do so they may be liable to pay a penalty equal to the amount required to be withheld.
Once a clearance certificate is granted it will be valid for twelve (12) months.
In some circumstances a Variation Application can be made by the vendor to seek that the 12.5% withholding tax rate is reduced to reflect the tax liability associated with the transaction (for example, if the vendor is selling at a loss).
What does it apply to?
The FRCGW legislation applies to taxable Australian real property including:
- Real property situated in Australia including vacant land, buildings, residential and commercial property;
- Mining, quarrying or prospecting rights;
- Lease premiums paid for the grant of a lease over real property in Australia;
- Indirect Australian real property interests in Australian entities, whose majority of assets consist of the abovementioned asset types; and
- An option or right to acquire any of the above asset types.
This change in legislation has the potential to affect many more property transactions than it did in the past and is an important step in the conveyancing process.
For more information in relation to whether your property transaction is affected by the above legislation or for assistance in the purchase or sale of property, please do not hesitate to contact the Commercial, Property and Conveyancing Team at your Gold Coast Lawyers, McLaughlins Lawyers.
Author: Alex Hamlyn
Director: Ian Kennedy